Income Tax Clearance Certificate in India – When Do You Need It?

It’s not uncommon that a person visits any country (in our case India) and generates income such that such s/he becomes taxable in such country. If it happens in India, then such a person is required to obtain a tax clearance certificate from the income tax authorities. People who are required to obtain tax clearance certificates can be bifurcated into two categories i.e., persons not domiciled in India and persons domiciled in India. Let’s understand the requirements of tax clearance certificate in India in detail.

Tax Clearance Certificate for Persons Not Domiciled in India

Persons who are not domiciled in India usually come to India in relation to employment. In other cases, they might visit India for business or profession. In any case, they are required to obtain a tax clearance certificate in India stating that they do not have any tax liability pending to be discharged in case they have derived income from any source in India. Thus, there are 3 conditions that need to be fulfilled in order to mandatorily obtain a tax clearance certificate:

•  The person should not be domiciled in India
•  S/he should have come to India for the purpose of business, profession, or employment
•  S/he should have derived income from any source in India

Usually, the concerned employer or the person responsible for paying income shall state to the income tax authorities through an undertaking that the tax liability of the person not domiciled in India will be paid by such employer or person paying income. Income tax authority shall issue the No Objection Certificate in Form No. 30B stating that it does not have any objection to the person leaving India. Upon receiving the undertaking, the income tax authorities shall issue the certificate.

Tax Clearance Certificate for Persons Domiciled in India

The tax clearance certificate for individuals or businesses is usually not mandatory for persons domiciled in India. They usually need to disclose their Permanent Account Number (PAN), estimated duration of stay outside India, and the purpose of their visit outside India. However, if the income tax authorities require such persons to obtain a tax clearance certificate, then it can pass such an order after obtaining the approval of the Chief Commissioner of Income Tax. Following are the circumstances whereby a person domiciled in India may be required to obtain a tax clearance certificate in India:

•  Where such a person is involved in some serious financial irregularities and the tax authorities require his/her presence in the investigation of relevant cases and it is likely that a tax demand can be raised against such person or,
•  Where such a person has direct tax arrears outstanding that exceed Rs. 10 lakhs against him/her and it has not been stayed by any authority.

Who Are Not Required to Obtain Tax Clearance Certificate?

Prima facie, it can be seen that the persons who are or might have tax liability in India are required to obtain a tax clearance certificate. Thus, the following categories of persons are not required to obtain tax clearance certificates from income tax authorities:

•  A person who is resident in India and travels abroad for any purpose apart from permanently leaving India 
•  A person who is not domiciled or non-resident in India and has entered India for any reason apart from the profession, business or employment. 

Responsibility On Owner or Charter of Any Ship or Aircraft

The owner or charterer of any ship or aircraft that is carrying passengers from India to outside India shall satisfy himself that the person is carrying the Income Tax Clearance Certificate. If such owner or charterer allows any person, who is required to obtain a tax clearance certificate, to travel by such ship or aircraft without satisfying himself that the person possesses such tax clearance certificate, then such owner or charterer shall become personally liable to pay whole or part of such tax liability that is payable by such person not possessing the certificate. Further, such owner or charterer shall be deemed as assessee in default and the tax can be recovered from him as the arrears of tax.

Above were the broad provisions governing the tax clearance certificate requirements in India. In case you have any queries, feel free to contact the ASC Group.